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Review of Economic Studies Vol. 90 No. 4 2023

Time Consistency and Duration of Government Debt: A Model of Quantitative Easing

Saroj Bhattarai1; Gauti B. Eggertsson2; Bulat Gafarov3

1 University of Texas at Austin · 2 Brown University · 3 University of California, Davis

Abstract

This article presents a model of quantitative easing (QE) at the zero lower bound (ZLB) on the short-term nominal interest rate. QE, which reduces the maturity of government debt, is effective at the ZLB because it generates expectations of future monetary expansion in a time-consistent equilibrium. Numerical experiments show that this effect can be substantial.

DOI
10.1093/restud/rdac063
Volume
90
Issue
4
Pages
1759-1799
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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